China Is Choking on Its Success

Nov. 5 (Bloomberg) -- Walking through Beijing’s Tiananmen
Square last week, a German family of five surrounded me, all
wearing large face masks and sunglasses. They weren’t robbing
me, just asking me to take their photo. When I yelled the
customary “Say ‘cheese,’” the dad joked: “We are smiling
under here.”

Only China’s pollution bubble is no laughing matter, and
tourists tell the story. Thanks to extreme air pollution,
foreign arrivals plunged by roughly 50 percent in the first
three-quarters of the year. Beijing could see even fewer
visitors to the Forbidden City, the Great Wall and the famous
square dominated by a painting of Mao Zedong thanks to images of
acrid smog that have been beaming around the globe.

The timing doesn’t help. Jokes about renaming the city
“Grayjing” or “Beige-jing” coincide with the Communist
Party’s much-anticipated Third Plenum meeting Nov. 9-12. In a
more democratic system, that might increase the urgency to act
boldly to address a bad-air crisis that’s literally impossible
not to see. But early signals aren’t encouraging. News media
leaks have the more than 200 members of the party’s Central
Committee crafting a vague blueprint for readjusting China’s
economic structure. Nowhere are there hints the plan will do
what China really needs to do: Ban coal.

China’s Crisis

The conventional wisdom is that China will eventually get
serious about the environment, and when it does, the skies will
turn blue before we know it. This view finds comfort in the
experiences of the U.K. and the U.S. and concludes that
Beijing’s toxic-air challenge pales in comparison with London’s
back in the days of Charles Dickens. But what if the comparison
is a false one? What if China’s crisis is different and harder
to reverse?

Neither London in the 1850s or 1950s nor Pennsylvania in
the 1940s was at the mercy of a paranoid authoritarian
government whose legitimacy relies on 8 percent growth. Case
studies of the past weren’t as linearly reliant on
manufacturing. They weren’t dealing with urbanization anywhere
near the scale of modern-day China. They didn’t rely on huge
overseas investment predicated partly on the ability to pollute
freely. Large numbers of their politicians weren’t becoming
multimillionaires from the existing system.

China is entering completely uncharted territory --
navigating the demands of a newly vocal middle class without the
democratic and civil institutions that helped Japan and the U.S.
clean up environmental damage in the 1970s. It’s also doing so
with higher levels of corruption.

The party is playing with fire. Anger over pollution has
replaced land grabs as the primary cause of social unrest. The
last 12 months have seen a sharp increase in protests against
chemical plants and oil refineries. Fewer than 1 percent of
China’s 500 largest cities meet the World Health Organization’s
air-quality standards, while seven are ranked among the 10 most
polluted in the world. Walking the streets of Beijing, it’s hard
not to feel like you are trapped in an airport smoking lounge.

As China chokes on its success, the solution is obvious:
Phase out the use of coal immediately. Flush with $3.7 trillion
of currency reserves, China could finance a transition to
natural gas. Doing so requires political will of the kind that
neither President Xi Jinping nor Premier Li Keqiang has
displayed. When China does make the transition away from coal,
the economy will slow significantly in ways that would damage
the state-owned enterprises that dominate the economy and enrich
the Communist Party and its cronies.

Embarrassing Year

China’s new leaders are acting in other ways. A series of
embarrassments this year -- not least of them thousands of dead
pigs floating in the Huangpu River near Shanghai and myriad
food-contamination scandals -- and the increased frequency of
protests leave them little choice. In August, China promised to
spend the equivalent of the gross domestic product of Singapore,
or about $275 billion, to improve air quality.

“Of course, the country continues to be an investment
destination and expats will come here in numbers, but it is
definitely harder to sell Beijing as a posting,” says Kobus van
der Wath, founder of the Beijing Axis, an international advisory
firm. “Also, the level of dissatisfaction among Chinese was/is
very high at the times when pollution was/is at its worst.”

But there’s little sign China understands the extent to
which bad air is imperiling investment. Many of the government’s
ideas about cleaning up first-tier cities such as Beijing
involve moving coal-burning plants toward Shanxi province and
inner Mongolia -- in other words, redistributing pollution to
less populated areas. Better emissions standards are vital, too.
In 2012 alone, China added more cars than the total number that
plied its roads in 1999.

Once the U.K. and U.S. got serious about reducing carbon
emissions, the transition away from coal took a few decades. But
China doesn’t have decades. So Beijing can rail against the
foreign media for exaggerating its gray air. It can pretend wind
turbines, solar farms and other renewables alone will do the
trick. But China should do the inevitable and curb coal use
today. Otherwise, the only tourists heading to Beijing in the
years ahead will be adventure seekers donning gas masks.